Value Innovation – The Key to Blue Ocean Strategy®

Value Innovation is the cornerstone of Blue Ocean Strategy® and is created through a series of strategic moves resulting in a product or service substantially different from any other offering. These strategic moves also function to lower costs to the producer of the product or service, resulting in the capability to offer a high value product or service that has not been seen before, at a very reasonable price to the buyer.

Why value innovation? Value without innovation will give only incremental gains easily duplicated by the competition. Innovation without value is typically technology oriented and won’t be a commercial success.

The idea is to create a huge leap in value never seen before. That leap attracts buyers that have never before considered buying the product or service.

Consider the Nintendo Wii. When Satoru Iwata was selected the first non-family CEO of Nintendo, he did not like what he saw. He saw Nintendo placing a distant third behind Sony and Microsoft in the electronic games business.

After researching the market place, and realizing that the typical buyer is a young, antisocial male, he wondered why everyone else didn’t play electronic games. So he asked older males, girls, families, and retirees why they didn’t play. He got an earful.

The games were too expensive, too complex, too antisocial, and too high tech. So, using four questions from the Blue Ocean Strategy® methodology, he challenged his team to get answers never asked before of non-gamers.

· What don’t you like about the electronic games? This question and others helped them decide what factors could be eliminated that the industry has taken for granted.

· What is OK but way over hyped? This helped them decide what factors could be reduced well below the industry’s standard.

· What features are there but you would like to see more of? This helped them decide what factors should be raised well above the industry’s standard.

· What is missing for you? What do we need to offer that would make you really enjoy playing games? What factors can be created that the industry has never before offered? This is the real key to the value.

Value innovation can be seen visually by the graphic below as described in the book Blue Ocean Strategy: How to create uncontested market space and make the competition irrelevant by Chan Kim and Renee Mauborgne.

The result is that the Nintendo Wii has broken all records for sales. Satoru Iwata made difficult decisions, often facing great ridicule, such as when he made the decision not to include a DVD player in the Wii console. That decision dramatically reduced the cost of the Wii and his rationale was that DVD players are available everywhere. Most people didn’t need another one.

So while Sony and Microsoft were reducing their prices below cost hoping to make profit on the games, Nintendo was selling at full price and couldn’t keep the Wii on the shelves.